Third party funding

On 14 June 2017, Hong Kong passed key legislation allowing third party funding in arbitral proceedings and mediation seated in Hong Kong, as well as for work carried out in Hong Kong in arbitral proceedings seated elsewhere.

Hong Kong therefore joins Singapore, which also passed a similar legislation earlier this year. However, contrary to the newly enacted law in Singapore, Hong Kong embraces a wider definition of “third party funder“. Indeed, Hong Kong extends the category of a potential third party funder to any “person who is a party to a funding agreement […] and who does not have an interest recognized by the law in arbitration other than under the funding agreement“. Hong Kong therefore does not only limit the notion of third party funder to professional funders. Based on this definition, it is clear, however, that lawyers who provide legal services to a party to an arbitration case remain prevented from funding this case. Hence, contingency or conditional fee agreements to the effect that no fees will be charged if the client’s case is unsuccessful remain prohibited under Hong Kong law. The newly adopted law also encourages the issuance of a code of conduct setting out ethical and financial standards for third party funders.

In the meantime, the Paris Bar Council also passed a resolution indicating support for third party funding and confirming that such a financial arrangement was a positive element for access to justice in international arbitration, as it restores equality of arms between the parties insofar as it allows a party to initiate a claim even if this party does not have the financial means to finance those costly proceedings. The resolution adopted by the Paris Bar Council also emphasises that the current state of French Law does not prohibit third party funding for international arbitration and details the ethics obligations owed by counsel representing a funded party.

On 10 January 2017, Singapore’s Parliament made further strides in securing Singapore’s place as a leading global hub for alternative dispute resolution (ADR) by passing two pieces of legislation: (i) amendments to its Civil Law Act legalizing third party funding in international arbitration proceedings; and (ii) a mediation bill (the Mediation Bill).READ MORE

On 15 September 2016, the English High Court (the Court) dismissed a request to set aside an arbitral award under section 68(2)(b) of the U.K. Arbitration Act 1996 (the Act), holding that a sole arbitrator in an ICC arbitration did not commit a “serious irregularity” by including the costs of a third party funder within a costs award. The ICC arbitration was seated in England and was therefore subject to the Act.

The case arose out of arbitration proceedings brought by Norscot Rig Management Pvt Limited (Norscot) against Essar Oilfields Services Limited (Essar) for repudiatory breach of an operations management agreement. The arbitrator, who was highly critical of Essar’s conduct towards Norscot, awarded the latter various sums, including the costs of third party litigation funding which it had obtained in order to bring the arbitration.READ MORE